Missed last Thursday’s Smart Mobility Slovenia Meetup? No worries, we’ll update you with the most interesting contents of the evening including the panel discussion about economics, business model innovation and the pitfalls of rapid growth.
It is clear that being mobile is a necessity for every member of a modern society. To ensure the mobility of every human being, many different startups nowadays focus on enabling a convenient, affordable and environmentally-friendly movement from A to B. Especially, the industrial revolution and industrial innovations enable new businesses to emerge. This is why, when entering the stock market, platforms like Uber and Lyft reached skyrocketing valuations.
Arguably, companies are found to make profit. So besides ecological and social aspects, creating revenues is always the key objective. So, when looking at the development of these four startups, we can see that their valuations reached billions in less than few years, especially Uber, Didi and Lyft. As a consequence more and more people continue to invest in these innovative start-ups leading to huge funding amounts. Particularly, with VC investments skyrocketing, the speed at which companies have been scaling up to mega valuations has dramatically increased. However, none of these ride-hailing platforms has reported real profits yet – even after operating on the market for so long, they are still not profitable and still far away from achieving sustained profitability. Asking our experts Jure Mikuž, Nataša Koražija and Matej Grošelj about whether investing in these unicorns or not, resulted in equivocal statements. Essentially, this can be traced back to the difficulty to predict the future of this industry being full of disruptive innovations.
Nonetheless, these companies are not the only unicorns in the mobility sector. Hence, the following chart provides a selection of 19 unicorns out of close to 44 of such billion dollar companies existing in Travel and Mobility Tech today (as of September 2019).
In fact, China has become the #1 market for VC investments in Travel & Mobility Tech startups – ahead of the US. Asia emerged as Travel & Mobility Tech’s most funded startup region already in 2015. Europe has only played a minor role in Travel & Mobility Tech so far. But this may change. The speed at which various startups in Travel & Mobility Tech have generated their billion-dollar company valuations is exceptional. However, valuation gets pumped up through a series of rounds of investments. Notwithstanding, a valuation is no indicator for the true monetary value of a company; it is rather arbitrary, which is why valuations can change very quickly. You can see this phenomenon on the example of Uber:
Investors were excited to invest in this rapidly growing venture leading to an ultimate valuation of $100 billion before entering the stock market. However, after going public, the company’s valuation dropped to only $46 billion. By any measure, Uber’s seven-year entrepreneurial journey has been extraordinary. No venture has ever raised more capital, grown as fast, reached as lofty a valuation - or lost as much money as Uber. While in 2018, Uber reported a loss of $1.9 billion from January until September, the company increases their 2019 year to date operating loss to $7.6 billion over their five segments. In total, Uber's third-quarter adjusted EBITDA loss amounted to $585 million. So we all know, losses of this magnitude are clearly not sustainable and call for an explanation of why Uber has been unable to rein in ballooning costs. According to Jure Mikuž, the startup argues to become profitable once autonomous driving replaces their drivers which will reduce labor costs drastically. But, we all know that currently autonomous driving is still far away from being implemented in the mass-market.
During the meetup, a further example was presented in the niche market “micro-mobility”. Calculations of the startup Bird operating in the US-city of Louisville demonstrated the unprofitability of every scooter with a short lifetime of approximately 28 days. Furthermore, the meetup also focused on the other side – the investor’s point of view. A current example represented Softbank, the Japanese multinational conglomerate holding company headquartered in Tokyo. As the company owns stakes of mobility startups all over the world (amongst others Uber and WeWork), they can be considered as the biggest player in mobility services. To sum it up, Softbank’s massive loss of 700 billion yen ($6.4 billion) in the July-September quarter compares with a 526 billion yen profit during the same period last year. As a result, when you look at all these mobility companies, you see that definitely something went wrong. So, the question, if they are likely to become profitable soon, cannot be answered as easily, especially, due to the volatility of the stock market.
Stay tuned for more information about the future of the mobility industry. And make sure to attend our next Meetup to join the discussion.
Your Smart Mobility Slovenia Team